Locked

The AP is reporting that 2009 is likely to be a difficult year for commercial real estate. Real Capital Analytics is quoted as saying that $25.7 billion of commercial property are currently bank-owned or in default. They are projecting that this number will likely more than triple in 2009 to $80.9 billion.

At least part of the situation is rooted in the credit crisis and the lack of available capital. Marcus & Millichap Real Estate Investment Services and National Real Estate Investor magazine surveyed 1,100 investors in October and found that 40 percent would need to refinance at least part of their portfolios this year. However, an appeal by a commercial trade group to the Bush administration to be included in the $700 billion bailout (TARP) has not yet been answered by the Treasury Department.

On top of financing problems, there is a drop in demand for store space due to so many retailers going out of business. Marcus & Millichap are expecting an 11 percent vacancy rate this year. This is, of course, going to put downward pressure on rent rates. It looks like 2009 will mark the beginning of a market where tenants are going to have the upper hand over landlords in negotiations.

High vacancy rates, lower rents, and tight credit are all a recipe for a very difficult time for commercial landlords.

It only takes a short walk near my Lakeview home, along the commercial streets of Halsted and Broadway to see that this will hold true for Chicago as well. The demise of large tenants like Linens ‘n Things are going to gaping holes in shopping districts. But equally disturbing is the rise in the number of soaped up windows that were once little boutiques, inviting galleries, and glittering knick knack shops. As I walk by the still open, but all-but-empty little stores, I can only imagine that there will be many more papered windows in my neighborhood soon.